COMMENTARY
Can San Diego provide an economic roadmap for us?

By Lisa Gibson and Rob Kay

Every governor since Jack Burns has commissioned a plan, plotted a strategy or fashioned a policy with the aim of creating a more diverse economy for Hawai'i.

And how, exactly, do we compare to the rest of country?

One place to begin is by looking at the "Best Places for Business and Careers" issue (May 26) of Forbes magazine. The article (available online) ranked 150 of the largest metropolitan areas in the United States in terms of job growth, cost of doing business and educational attainment.

The upshot is that Honolulu placed 142nd — near the bottom of the pile. Of course, the Forbes survey isn't telling us anything new. We're all familiar with the price of paradise and the exodus of talent to the Mainland.

However, the news is not all bad. Although we ranked 115th for job growth and 143rd for cost of doing business, we were in the top third (44th) in educational attainment. Of all three components, education is the most crucial. Hawai'i's strong showing in this category is a definite plus.

Despite the other liabilities the Forbes survey depicts, there are other U.S. communities with high costs of living (and highly regulated land-use practices) that have managed to diversify their economies with spectacular results.

Enter San Diego

It's very instructive to look at San Diego as a model of a Mainland community that has very successfully diversified its economic base. More specifically, we should focus on how San Diego developed biotechnology as a powerful economic driver. San Diego has become a bona fide biotech mecca — a model that we would be wise to emulate.

A port city with a large military presence and a diverse demographic base, San Diego shares many of Honolulu's characteristics, including high educational attainment.

San Diego also shares some recent economic history with Honolulu. As in our own experience, San Diego faced a severe recession in the first half of the 1990s, which was the longest and deepest of the past 60 years. The downturn, subsequent recovery and expansion were not mere business or cyclical adjustments but an extensive overhauling and restructuring of the region's basic economic drivers.

With a plan in hand, San Diego went from an economy largely dominated by defense and military expenditures into a diversified mix of high-technology endeavors.

Some of these sectors were byproducts of the defense industry, but a great deal came about by capitalizing on highly educated and skilled workers. Emerging growth areas include telecommunications, electronics, computers, software and biotechnology.

San Diego is not the largest life- sciences center in the country, but it is a major player. There are approximately 499 biotech and medical-device firms that owe their existence in some way to Scripps, Salk or the University of California.

San Diego is able to maintain a productive medium for life sciences despite a real-estate market that rivals Hawai'i in cost and rush-hour traffic that would humble H-1 commuters.

So how did they do this? Are there parallels here that we might draw from?

First-class research centers

The genesis of San Diego's ascension from sleepy Navy town to biotech player began with the establishment of University of California-San Diego, the Scripps Clinic and Research Foundation and the Salk Institute.

By 1963, the first labs were in place and the first generation of resident fellows moved in with Salk, including molecular-biology pioneers Renato Dulbecco, Francis Crick, Salvador Luria and Jacques Monod.

Once this group had taken up residence, the future of San Diego as a scientific center was sealed. Hawai'i doesn't have the equivalent of a Salk Institute, but we do have a first-rate cancer center and medical school. It's the belief of Dr. Edwin Cadman, dean of the John A. Burns School of Medicine at the University of Hawai'i, that our nascent biomedical center will be a draw for some of the best minds in biotech, which in turn will attract venture capital and more research grants.

Government partnerships

When Salk conceived the idea of founding a world-class research organization that would attract top thinkers across a range of disciplines, he looked for a suitable site. San Diego stepped up to the plate and voted in a special referendum to donate a 27-acre site around the corner from the Scripps Research Institute for the project, and the National Foundation for Infantile Paralysis, which had financed Salk's polio work, pledged money.

Similarly, the Hawai'i state government has provided land in Kaka'ako and $150 million in bonds to build a biomedical center.

The area is changing rapidly as the state provides infrastructure, and land owners and developers (such as the Kamehameha Schools, General Growth, MacNaughton/Kobayashi and KUD International) consider or are planning offices and condos near the site. There is no question that building in the entire area is picking up momentum.

Academic connection

Academia can be a fertile ground for new companies. In 1968, San Diego made the crucial connection between academia and commerce. That was when Irwin Jacobs, University of California-San Diego professor of computer science and engineering, founded Linkabit, a company that developed military signal-processing equipment and spawned Qualcomm and Leap Wireless — both very successful public companies that still have headquarters in San Diego.

Local academics have regularly founded companies or served as advisers to them. In 1978, for example, Ivor Royston and Howard Birndorf, both UCSD scientists, founded Hybritech, the first company to commercialize the use of monoclonal antibody diagnostics. According to Forbes, since it opened its doors in 1968, the medical school at UCSD has generated 65 startup companies. Of those,

30 percent have gone public or were acquired for an average of $150 million each.

UH has not had a similar track record but has spawned successful private companies such as Hawaii Biotech, Oceanit and STI. Like Stanford and the Massachusetts Institute of Technology, we need to encourage UH professors to be entrepreneurs.

Infrastructure

Until 1985, San Diego lacked the intellectual-property attorneys, experienced management and sources of capital necessary for a burgeoning economy. But with the arrival in 1985 of UCSD Connect, a university-based organization that helps researchers develop companies, the science community's commercial engine has shifted gears.

Hawai'i, to its credit, has established University Connections, based on the San Diego model.

We need experienced venture capitalists, more venture capital, top-flight intellectual-property attorneys and other "infrastructure players" vital to the new economy. We're getting there. More talented professionals are moving here. Also, as semi-retired VCs and "angel" investors from the Mainland such as John Dean, Barry Weinman and Irwin Federman take up residence, invest in Hawai'i companies and mentor local management, the critical mass for the tech sector increases.

Real-estate opportunities

San Diego's real-estate community has jumped on the biotech bandwagon and profited handsomely by providing infrastructure for the life-sciences industry. At present in San Diego, wet- and clean-lab space exceeds shopping centers by 3 million square feet (laboratory space 14,150,000 square feet, regional shopping malls 11,684,000). Two of the largest and most successful real-estate investment trusts focus on biotechnology. Local developers can learn from their brethren in San Diego and crunch the numbers.

In 2003 alone, says Enterprise Honolulu CEO Mike Fitzgerald, "Honolulu lost at least eight biotechnology companies to other regions because of the lack of wet-lab space and venture capital." Local developers need to understand how they can benefit from biotech.

Focus and patience

San Diego's biotech miracle was not built in a day. On the contrary, it has grown over many years from a rare confluence of geography, defense spending, sterling academic institutions and the relationships fostered among local business, government and research communities.

"It's taken decades for San Diego to realize the benefits," says Guy Iannuzzi, president & CEO of Mentus, San Diego's original biotechnology marketing agency. The upshot is that we are only at the very beginning of the journey. "To do it right," says UH's Cadman, "we're going to need patience, focus and teamwork."

Lisa Gibson is special adviser, biotech consortium, with Enterprise Honolulu. Rob Kay is a public relations consultant specializing in real estate, and is a technology consultant.